goods and services tax - srr-foundation.org · •gst overview and salient features 28/08/2017...

Goods and Services Tax(GST)

Presented by

Madhusudan Sharma

28/08/2017 Legal Compliance workshop for NGOs

Legal Compliance Workshop

Presentation Plan

• Why GST ?

• Cascading impact of tax and double taxation

• Trade barriers and Tax evasion

• Why Constitution Amendment ?

• Taxes Subsumed in GST

• Taxes not Subsumed

• Commodities kept outside GST

• GST Overview and Salient Features


Why GST ?• To Integrate and harmonize the tax structure and

develop a common national market for goods and services - One Nation One Tax

• Remove tax barriers between States • Remove cascading impact of taxes and avoid

Double Taxation• Comprehensive and continuous chain of set-off –

Input Tax Credit• Check on tax evasion and widening Tax base• Rationalise exemptions• Improve competitiveness of Domestic Industry • Ease of doing Business


Taxes Levied on Goods and Services before GST

Tax On By

Excise Manufacture of Goods

Centre

Services Services provided Centre

VAT Sale of Goods within State

States

CST Inter-state sale of Goods

Levied by Centre,Collected by States

Purchase, Entry Goods States


Trade Barrier

• Different tax rates for same item in States

• CST @ 2% on inter state trade

• CST on intermediate goods moving across states made manufacturing in India less competitive e.g.

– Raw material from Maharashtra to Andhra 2% CST

– Processed material from Andhra to TN 2% CST

• Stock transfers – incremental cost of logistics, warehousing and working capital

Trade Barrier-2

Check post system at State boarders Lead to:

• Corruption and Tax evasion

• Increased travel time and resultant costs

• Trucks in India drive 280 km per day as against 800 km per day in US

• 40% of travel time is spent on check points and official stoppages

(Report on the Revenue Neutral Rate and Structure of Rates for the Goods and Services Tax (GST), December 2015)

Cascading Tax• Two parallel streams of taxation

– Centre – Excise, Service Tax, Custom duty

– State - Value Addition Tax (VAT)

• CENVAT-Tax set off only against Excise and Service Tax up to manufacturing. Additional excise and surcharge excluded

• State VAT-No Tax Credit for Excise, Service tax

• No set off for 2% CST either in CENVAT or VAT

• Overall tax burden on goods was estimated at 27%-30%. Excise 12.5%, VAT 14.5%

Cascading Tax ExampleRs.

Base Cost Value addition

Taxable Value

Tax

Cloth purchased 14% VAT 900 100 1000 140

Shirt manufactured 12% Excise 1140 560 1700 204

Whole seller 14% VAT 1904 196 2100 294

Consumer cost 2394

Material + Value Addition 1756

Total Taxes 638

Taxes as % of Value Addition 36.33%

Double Taxation

Excise and Service Tax on

• Software

• Drawings and Designs

• Commissioning and installations

VAT and Service Tax on

• AC Restaurants

• Catering

• Software

• Works contracts

• Right to use of movable goods

Definition of Manufacturing, Goods, ServicesValuation basis – Production capacity, Transaction value, MRP


Tax Evasion

Volume of Taxable and Non-Taxable Turnover as per -

Report on the Revenue Neutral Rate and Structure of Rates for the Goods

and Services Tax (GST)

Taxable and Non-Taxable TurnoverAmount in Crore Rs.

State Taxable

Turnover

Non-Taxable

Turnover

Ratio of non-

taxable to

taxable

turnover

Maharashtra 3,16,598 2,41,319 76%

Tamil Nadu 2,14,771 1,42,,321 66%

Kerala 2,93,151 44,683 15%

Karnataka 1,86,045 98,300 53%

Andhra Pradesh 60,669 1,60,910 265%

Gujarat 3,04,479 6,51,620 214%

Total 13,75,713 13,39,154 97%

Why Constitutional Amendment?• Centre has the powers to levy tax on:

• Manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.)

• Import of goods• Inter-State sales of goods (but the tax is collected and

retained entirely by the States) • Services

• States have the powers to levy tax on the sale of goods

• Centre cannot impose any tax on goods beyond manufacturing (Excise) or primary import (Customs) stage, while states do not have the power to tax services and inter state sale


Constitutional ProvisionsArticle 245

• Parliament may make laws for the whole or any part of the territory of India

• Legislature of a State may make laws for the whole or any part of the State

Article 246

• Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I “Union List” in the Seventh Schedule

• 99 items including Defence, foreign affairs, banks, currency and coinage, union duties and taxes


Seventh Schedule• Legislature of any State has exclusive power to

make laws for such State or any part thereof with respect to any of the matters enumerated in List II - “State List”.

• 61 items including public order and police, local government, public health, sanitation, agriculture, forest and fisheries, education, State taxes and duties

• Parliament and the Legislature of any State, have power to make laws with respect to any of the matters enumerated in List III “Concurrent List”


Constitution 101st Amendment Act

• Deleted Article 268A that empowered Central Govt. to levy Tax on services

• Added Article 246A empowering Parliament and Legislature of every State to make laws with respect to goods and services tax, and

• Empowered Parliament to make laws with respect to supply of goods, or of services, or both in the course of inter-State trade or commerce (including import and export)

• Amended List I and II in Seventh Schedule


GST_4Constitution Amend Sum.docx

Amendments in Union List


Entry Before After

84 Duties of excise on tobacco and other goods

manufactured or produced in India except:(a)

alcoholic liquors for human consumption. (b)

opium, Indian hemp and other narcotic drugs

and narcotics, but including medicinal and toilet

preparations containing alcohol or any

substance included in sub-paragraph (b) of this

entry.

Duties of excise on the following goods

manufactured or produced in India, namely:

(a) petroleum crude; (b) high speed diesel; (c) motor

spirit (commonly known as petrol); (d) natural gas;

(e) aviation turbine fuel; and (f) tobacco and tobacco

products

92 Taxes on the sale or purchase of newspapers

and on advertisements published therein

Deleted

92A Taxes on the sale or purchase of goods other

than newspapers, where such sale or purchase

takes place in the course of inter-State trade or

commerce Deleted

92B Taxes on the consignment of goods (whether

the consignment is to the person making it or to

any other person), where such consignment

takes place in the course of inter-State trade or

commerce Deleted

92C Taxes on services Deleted

Amendments in State List


Entry Before After

52 Taxes on the entry of goods into a local area

for consumption, use or sale therein

Deleted

54 Taxes on the sale or purchase of goods other

than newspapers, subject to the provisions of

entry 92A of List I

Taxes on the sale of petroleum crude, high speed

diesel, motor spirit (commonly known as petrol),

natural gas, aviation turbine fuel and alcoholic liquor

for human consumption, but not including sale in the

course of inter-State trade or commerce or sale in

the course of international trade or commerce of

such goods

55 Taxes on advertisements other than

advertisements published in the newspapers

and advertisements broadcast by radio or

television

Deleted

62 Taxes on luxuries, including taxes on

entertainments, amusements, betting and

gambling

Taxes on entertainments and amusements to the

extent levied and collected by a Panchayat or a

Municipality or a Regional Council or a District

Council

Existing taxes to be subsumed in GST:Taxes currently levied and collected by the Centre:• Central Excise duty• Duties of Excise (Medicinal and Toilet Preparations)• Additional Duties of Excise (Goods of Special

Importance)• Additional Duties of Excise (Textiles and Textile

Products)• Additional Duties of Customs (CVD)• Special Additional Duty of Customs (SAD)• Service Tax• Central Surcharges and Cesses so far as they relate to

supply of goods and services


State Taxes to be subsumed • State VAT• Central Sales Tax• Purchase Tax• Luxury Tax• Entry Tax (all forms)• Entertainment Tax (except those levied by the

Local Bodies)• Taxes on advertisements• Taxes on lotteries, betting and gambling• State Surcharges and Cesses so far as they relate

to supply of goods and services


Taxes not SubsumedCentral

• Basic Custom Duty

• Anti Dumping Duty

• Export Duty

State

• Stamp Duty

• Electricity Duty

• Toll Tax

• Passenger Tax


Commodities kept outside GST• Alcohol for human consumption

• Petroleum Products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation turbine fuel (ATF)

• Existing taxation system of VAT and Central Excise will continue in respect of the above commodities

• Tobacco and Tobacco products are subject to GST and in addition, the Centre has power to levy Central Excise Duty and GST Cess


GST Rates• Cap on the Central and State GST rates at 20%

each and 40% for IGST• GST Council finalised a five-tier rate structure at

Nil, 5%, 12%, 18%, and 28% for Goods and Services. Special rates 0.25% raw diamond and 3% Gold and Jewellary

• Nil rate for export and unpacked Food items• 5% rate for items of mass consumption or ‘Aam

Aadmi’ products. • Standard GST rate of 12% and 18% will be levied

on other items. • Highest slab of 28% will be applicable for white

/sin goods


GST Compensation Cess• GST Compensation Cess will be levied over

and above GST (CGST and SGST/UGST) for which no Input Tax Credit will be available

• Pan Masala - 60%

• Aerated water - 12%

• Tobacco and its products - 61 to 204%

• Coal - Rs. 400 per ton

• Motor Vehicles - 1 to 15 %


Registration• Every supplier shall be liable to be registered in

the State from where he makes a taxable supply of goods and/or services if his aggregate turnover in a financial year exceeds threshold

• In case taxpayer supplies goods / services from business establishment in more than one States, he shall be required to be registered in each of the State.

• Person having multiple business verticals in a State may be allowed to obtain a separate registration for each business vertical.


15 Digit PAN based ID • First 2 digits –State Code

• Next 10 digits –PAN

• 13th digit –Entity number of the same PAN holder in a state (ISD or Business Vertical)

• 14th digit –Alphabet ‘Z’ by default

• 15th digit –Check sum digit


Threshold for Exemption

• Taxpayers with an aggregate annual turnover Rs. 10 lakh in 11 small hill States and Rs. 20 lakh in other States, would be exempt from GST.

• Small States - Assam, Arunanchal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim, Uttrakhand, Himachal Pradesh, Jammu & Kashmir


Aggregate turnover?Aggregate turnover includes the value of:• all taxable and non-taxable supplies,• exempt supplies, and• exports of goods and/or service• of all persons having the same PAN, • to be computed on all India basis • excludes:

– taxes charged under CGST, SGST/UGST and IGST Acts– value of supplies on which tax is levied on reverse

charge basis, and– value of inward supplies


Composition Scheme

• A registered taxable person, with aggregate turnover up to Rs.75 lakh in a financial year, may opt to pay a composition tax.

• Composition Tax Rate for:

o Trader 1%

o Manufacturer 2%

o Restaurant 5%

• Conditions – No Tax invoice, No Input Tax Credit


How Input Tax Credit can be utilized?• Credit of CGST paid on inputs may be used only for

paying CGST on the output and the credit of SGST paid on inputs may be used only for paying SGST. The two streams of input tax credit (ITC) cannot be cross utilized, except in specified circumstances of inter-State supplies for payment of IGST.

• The permitted combinations are:– IGST shall first be utilized towards payment of IGST, CGST

and SGST, in that order– CGST shall first be utilized towards payment of CGST and

then IGST– SGST shall first be utilized towards payment of SGST and

then IGST– Cross-utilization of CGST and SGST credit is not allowed


ITC of SGST is not available for CGST and vice-a-versa

IGST InputIGST

Output

SGST Input

CGST Input

SGST Out put

CGSTOut put

Flow of Input Tax Credit


Input Tax Credit under GST


Amount in Rs.

Sr. Activity Tax

Type

Base

Cost

Value

Addition

Taxable

Value

Tax

%

Tax Invoice

Value

Tax

Credit

Net Tax

Payable

1 Yarn Manufacture by A No 700.0 300 1000.0 0.0 1000.0

2 Yarn Sale by A GST 1000.0 1000.0 5 50.0 1050.0 0.0 50.0

3 Cloth Manufacture by B No 1000.0 500 1500.0 0.0 1500.0

4 Sale Inter State by B to C GST 1500.0 1500.0 12 180.0 1680.0 50.0 130.0

5 Shirt Manufacture by C No 1500.0 500 2000.0 0.0 2000.0

6 Sale Inter State by C to D GST 2000.0 2000.0 18 360.0 2360.0 180.0 180.0

7 Sale by D to E GST 2000.0 100 2100.0 18 378.0 2478.0 360.0 18.0

8 Sale by E to F GST 2100.0 200 2300.0 18 414.0 2714.0 378.0 36.0

Total 700.0 1600 2300.0 1382.0 2714.0 968.0 414.0

Net Tax as % of all Inputs 18.00

Cascading Impact of Taxes before GST


Amount in Rs.

Sr. Activity Tax

Type

Base

Cost

Value

Added

Taxable

Value

Tax

%

Tax Invoice

Value

CEN

VAT

VAT

Credit

Net Tax

Payable

1 Yarn Manufacture by A Excise 700.0 300 1000.0 12.5 125.0 1125.0 125.0

2 Yarn Sale by A to B VAT 1125.0 1125.0 14 157.5 1282.5 157.5

3 Cloth Manufacture by B Excise 1282.5 500 1782.5 12.5 222.8 2005.3 125.0 97.8

4 Sale Inter State by B to C CST 2005.3 2005.3 2 40.1 2045.4 40.1

5 Shirt Manufacture by C Excise 2045.4 500 2545.4 12.5 318.2 2863.6 222.8 95.4

6 Sale Inter State by C to D CST 2863.6 2863.6 2 57.3 2920.9 57.3

7 Sale by D to E VAT 2920.9 100 3020.9 14 422.9 3443.8 422.9

8 Sale by E to F VAT 3020.9 200 3220.9 14 450.9 3671.8 422.9 28.0

Total 700.0 1600 2300.0 1794.7 3746.9 347.8 422.9 1024.0

Net Tax as % of all Inputs 2300 44.52

Input Tax Credit Lost 573.1

GST – Intra (within) State

Tax Invoice ACost of Goods = Rs 100SGST @10% = Rs 10CGST @10% = Rs 10

Total = Rs 120

Tax Invoice BCost of Goods = Rs 200SGST @10% = Rs 20CGST @10% = Rs 20

Total = Rs 240

Tax Invoice CCost of Goods = Rs 300SGST @10% = Rs 30CGST @10% = Rs 30

Total = Rs 360

Centre

CGST@10%

State

SGST@10%

TimberMaker

FurnitureMaker

FurnitureRetailer

FinalConsumer

SGST Paid = Rs 10

A B C

SGST Paid = Rs 10[Rs30- Rs20 Input Tax Credit]

CGST Paid = Rs 10[Rs30- Rs20 Input Tax Credit]

SGST Paid = Rs10[Rs20-Rs10 Input Tax Credit]

CGST Paid= Rs10

CGST Paid = Rs10[Rs20-Rs10 Input Tax Credit]

GST – Inter (Outside) State (IGST)

Tax Invoice ACost of Goods = Rs 100SGST @10% = Rs 10CGST @10% = Rs 10

Total = Rs 120

Tax Invoice BCost of Goods = Rs 200IGST @20% = Rs 40Total = Rs 240

Tax Invoice CCost of Goods = Rs 300SGST @10% = Rs 30CGST @10% = Rs 30

Total = Rs 360

CentreCGST @10%IGST @ 20%

State X

SGST@10%

TimberMaker

FurnitureMaker

FurnitureRetailer

FinalConsumer

SGST Paid = Rs 10

A B C

Payment of CGSTCGST Payable = Rs 30Less CGST ITC = Rs 0Less IGST ITC = Rs 30

CGST Paid = Rs 0.0

CGST Paid= Rs10

State YSGST

@10%

State X State Y

Payment of SGSTSGST (Y) Payable=Rs.30Less IGST ITC = Rs 10

SGST Paid = Rs 20

State Border

Payment of IGSTIGST Payable = Rs 40Less CGST ITC=Rs 10Less SGST (X) ITC=Rs 10IGST Paid in Cash = Rs 20

GST - Overview• GST is a Destination based tax on

consumption of goods and services as compared to the earlier principle of origin based taxation.

• GST is applicable on “supply” of goods or services as compared to the earlier concept of tax on the manufacture of goods or on sale of goods or on provision of services

• Levied at all stages right from manufacturing to final consumption but only value addition is taxed


GST Overview-2• Credit of taxes paid at previous stages

available as setoff

• Burden of tax is to be borne by the final consumer

• Tax Credit to the State of final consumption

• It is dual GST in India, with the Centre and the States simultaneously levying it on a common base.

• Exports taxed at zero-rate for Input Tax Credit


GST Overview -3• Harmonized laws, regulations and procedures

for levy and collection of tax by Centre and States

• CGST, SGST/UGST and IGST levied at rates mutually agreed upon by the Centre and the States under the aegis of the GST Council (GSTC)

• Import of goods or services is treated as inter-State supplies and is subject to IGST in addition to the applicable customs duties


Inter and Intra State Supply• Inter-State supply of goods and/or services refers

to those transactions where the location of the supplier and the place of supply are in different States

• Intra-State supply of goods and/or services refers to those transactions where the location of the supplier and the place of supply are in the same State.

• States empowered to tax any economic activity in territorial waters up to 12 nautical miles, though it is Union Government’s territory


CGST, SGST and IGST

• GST to be levied by the Centre is called Central GST (CGST)

• GST to be levied by the States is called State GST (SGST) and UTGST by Union Territories.

• Integrated GST (IGST) is levied and collected by the Centre on inter-State supply (including stock transfers) of goods or services, so that the credit chain is not disrupted and there is smooth flow of tax credit from one State to another.

• IGST is equivalent to the sum of CGST and SGST


Funds flow from Taxpayer to States and Centre

Taxpayers Banks

RBI

State 1

State 2

State 3

Centre

Deposit Taxes

CGST fundsIGST funds

Inter- State settlement Information

Common GST Portal

SGST fundsIGST funds


जय हिन्दJai Hind


Madhusudan Sharma,Advocate and Insolvency Professional

B Com, LLB, Dip. Taxation, FCS, FCMA,

[email protected]

+91 9868872918, 8817311444


mailto:[email protected]

goods and services tax - srr-foundation.org · •gst overview and salient features 28/08/2017...

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